The primary driver for this week’s higher prices has been a spell of extreme cold over the past few days affecting key US winter wheat-producing states as far south as Texas.
China is continuing to purchase abnormally high volumes of corn and wheat.
Oilseeds markets have been recovering in recent days, although strong sterling is putting the brakes on domestic prices.
What to watch
Similar to Russia with its new export tax, Ukraine and Argentina are contemplating policy-led restrictions on their grain exports.
Pity global agricultural economists right now - we could do with some sympathy
The entire global grains and oilseeds markets continue to feed off one another, led by corn. Both the supply and demand side of the balance sheets are providing support to prices.
On the demand side, China continues to purchase abnormally high volumes of corn and wheat - as well as any other carbohydrate source it can find - in addition to its 100m-tonne annual soybean import requirement.
China’s corn stocks have been in decline for the last four years and we think they are in ‘stock build’ mode.
This, alongside a still-growing pig herd and a disastrous domestic corn harvest means few argue convincingly for reduced demand for imported grains ahead.
Indeed, Chinese local corn prices are around $150-200 per tonne above what it can buy from the Americas. Why wouldn’t they import?
On the supply-side of the balance sheet, thanks to higher domestic food price inflation, Russia has started to restrict grain exports through taxes on exporters-farmers.
Ukraine and Argentina are contemplating similar policy-led restrictions on their grain exports and the current adverse weather conditions in the US and EU do not argue for a bumper northern hemisphere grain harvest in a few months’ time.
Furthermore, what happens if the US runs out of corn or soybean supplies before Brazilian crops are available? Demand rationing. That’s what is happening right now.
All in all, demand from China remains abnormally strong and carbohydrate and protein supplies, especially in the next few months are questionable.
In the meantime, northern hemisphere crop conditions are sub-optimal.
There is a reason why prices are strong - the economics of supply and demand. And did I mention the sterling’s strength of late? Nurse!
Rupert Somerscales, ODA
Supply and demand picture for next season hanging in the balance
It has been another really wet winter, and now the snow has melted and the ground thawed, it is certainly waterlogged in places.
With the wheat supply and demand picture for the UK next season hanging in the balance between import and export, the condition of the crop as we move into spring is of increased importance.
Markets have been losing confidence in the prospects for above average yields and an exportable surplus next season, and new crop November 2021 feed wheat futures are pricing in this uncertainty and have been climbing relative to December 2021 Paris milling wheat prices.
At now close to just E10 per tonne below new crop Paris milling wheat, the UK is in financial ‘no man’s land’, neither pricing high enough to allow imports next season, nor low enough to gain export competitiveness.
Looking beyond the UK, the wheat market is continuing to get to grips with the consequences of the Russian export interference.
The next big unknown is Russian farmer spring planting intentions and how much their government has reduced the spring wheat incentive.
As we move closer to spring, crop conditions and winterkill in Russia and the US will set the tone for new crop markets, but for now, short of a dry spring in the northern hemisphere, next season looks, on the whole, well supplied.
Peter Collier, CRM AgriCommodities